Behind Amazon's stock price plunge: continued loss forecasts make the market lose patience

Amazon released its third-quarter earnings report on Thursday , October 24. The company's revenue and profit forecasts for the holiday shopping season were both lower than the average expectations of market analysts, reflecting the limitations of Amazon CEO Jeff Bezos' strategy of using huge spending to drive growth.

Amazon said in its financial report that it expects the company's fourth-quarter revenue to be between $27.3 billion and $30.3 billion, and that non-GAAP profits will be between a loss of $570 million and a profit of $430 million. Bloomberg statistics show that market analysts currently expect Amazon's fourth-quarter revenue to be $30.9 billion and net profit to be $460.5 million, excluding GAAP.

Since the performance expectations are lower than the market average, investors may worry that Amazon's revenue growth will not be able to make up for its insufficient profits. Amazon's net profit has been difficult to predict because Bezos has invested huge amounts of money in products and services such as Kindle Fire tablets and smartphones, distribution center networks, drones, and original content. Investors have begun to no longer favor Amazon's stock due to continued losses. Amazon's stock price has fallen by more than 20% this year. China's Alibaba Group surpassed Amazon in market value after its listing last month, becoming the world's most valuable e-commerce company.

"Amazon has not been valued by the market through profits," said Michael Pachter, an analyst at Wedbush Securities. "Amazon's stock price is related to its future prospects, and the market expects that the company will be profitable one day in the future."

Amazon's stock price rose by $0.21, or 0.07%, to $313.18 in regular trading on the Nasdaq Stock Market on Thursday. In subsequent after-hours trading, Amazon's stock price plummeted by $33.99, or 10.85%, to $279.19. In the past 52 weeks, Amazon's lowest stock price was $284.38 and its highest stock price was $408.06.

Third quarter results

In the third quarter ended September 30, Amazon's net loss was $437 million, more than ten times the net loss of $41 million in the same period last year. Amazon's revenue for the quarter increased 20% year-on-year to $20.6 billion. Amazon's third-quarter performance fell short of market expectations. Market analysts had previously expected the company to have a net loss of $331.4 million in the third quarter and revenue of $20.9 billion.

The fourth quarter is usually Amazon's most profitable quarter of the year, as consumers usually buy gifts for the upcoming Christmas in this quarter. Amazon is stepping up its preparations for the holiday shopping season. The company said earlier this month that it plans to recruit 80,000 seasonal temporary workers in the United States to assist in processing orders for the holiday shopping season, an increase from 70,000 in the same period last year. In addition, Amazon will also recruit 13,000 seasonal temporary workers in the UK this year.

At the same time, Amazon's spending continues to increase. In August this year, Amazon announced that it would spend $970 million to acquire Twitch Interactive, a video game live streaming service provider, to further enhance the company's entertainment services. This is also one of the largest M&A transactions Amazon has made since its establishment.

Kindle Fire

Amazon, which launched five Kindle Fire tablets last month, including the $99 Kindle Fire HD, is also planning to open temporary fashion stores in U.S. cities such as San Francisco and Sacramento during the holiday shopping season to give buyers a chance to see and try out the company's gadgets.

Amazon also previously secured a $2 billion credit line from Bank of America, allowing the company to continue investing in services that are not immediately profitable, such as same-day delivery.

Amazon is also embroiled in a dispute with publishing giant Hachette over e-book pricing. This week, Amazon signed a partnership with another publishing giant, Simon & Schuster, that aims to make book prices affordable for readers while giving Amazon, publishers and authors a healthy share of revenue.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.